Graft will fuel tax revolt, warns judge

"The greater the level of corruption, the less we will have tax integrity and the greater the possibility of a tax revolt," he said at an international economic law seminar at the University of the Witwatersrand.

Judge Davis heads the review committee charged with assessing the tax system’s role in supporting more inclusive growth and employment.

The committee’s work influenced a marginal increase in personal income taxes this year.

South Africans were growing impatient with the cost of corruption on the economy, which was evident in the question many people asked him: why should they pay tax in an environment of "endemic" corruption?

KPMG associate director Elizabeth Lombaard agreed that a tax revolt was possible but could be avoided if the government demonstrated that it was taking taxpayers seriously and spending taxes responsibly.

Corruption Watch executive director David Lewis said widespread corruption, problems in the tax collection agency and the way the government spent money "do potentially threaten that kind of response from taxpayers".

Judge Davis said money spent on excessive wage increases for public servants, bailouts for South African Airways (SAA) and the construction of two new universities could have been used better elsewhere.

The government is spending more than it is collecting in tax revenue, which has caused a large budget deficit and contributed to the personal income tax rise. More hikes are expected.

Instead of the two new universities the funds should have been invested in a national bursary fund, which would have ensured that more impoverished students were educated "without paying fees", Judge Davis said.

Students countrywide recently protested against high tuition fees, which resulted in President Jacob Zuma cancelling next year’s planned fee increases.

With personal income taxes already raised this year, other taxes may be next in line.

But Judge Davis said hiking corporate taxes would not be feasible as most companies were struggling due to weak economic growth.

He clarified that the committee was not saying that value-added tax (VAT) should be raised but that it was among the many options. Increasing VAT would get government the revenue it needed but would be adverse for economic growth, he warned.

Additional revenue could, however, be raised from estate duty and capital gains tax, he said.

Now was not the time to implement a carbon tax, as companies would simply pass the costs on to consumers, particularly the poor, he cautioned. For instance, he said, Eskom was one of the biggest emitters of carbon dioxide, and any cost increases it incurred would be passed on to electricity users.

The committee would soon investigate the viability of a wealth tax in SA, although this would "take some time".

The government and the private sector debated the Promotion and Protection of Investment Bill at the same function.

The bill is now undergoing the last stages of parliamentary processes. It seeks to provide a harmonised and standard legislative framework to govern investments, replacing bilateral investment treaties that the government has terminated.

Most foreign investors, particularly from Europe and the US, feel their investments and rights are less protected in the bill compared with the canned bilateral treaties.

"From an existing investment point of view and future point of view it does not look good. I have had companies who have now held back on FDI (foreign direct investment)," European Union Chamber of Commerce and Industry Southern Africa executive chairman Stefan Sakoschek said.

Department of Trade and Industry director Wamkele Mene said the government had consulted extensively before putting together the bill and despite "some unease" over the proposed legislation, companies continued to invest significantly in SA.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.